NFL: The League That Runs TV

Owners Reach $27.9 Billion Deal With Fox, CBS and NBC

NBC scored in the ratings Sunday as the Giants played the Cowboys.
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By

Matthew Futterman,

Sam Schechner and

Suzanne Vranica

December 15, 2011

National Football League owners voted to approve $27.9 billion of TV deals with Fox, CBS and NBC on Wednesday, confirming pro football as the driving force in an industry facing fundamental change.

As expected, the networks will pay 63% more on average to air NFL games from 2014 to 2022. Fox will pay an average of about $1.1 billion for the National Football Conference package, which includes many of the league's biggest markets, say people familiar with the talks. CBS will pay about $1 billion a year over the life of the deal for the American Football Conference package, which will include a handful of NFC games. And NBC will pay $950 million a year for nine years for the Sunday night prime-time package.

ENLARGE

Vernon Davis of the San Francisco 49ers.
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The networks' willingness to fork over such enormous sums reflects the reality of television today. Audiences are fragmenting among hundreds of channels and alternative viewing options, such as the Internet. Football remains one of the few programs that still draws tens of millions of viewers who watch live. That gives the networks much-needed leverage with both advertisers and cable operators, especially since the networks gained the right to stream the games on computers and tablets.

Overall annual broadcast revenue for the NFL will jump from an annual average of $1.9 billion in the 2007-2013 period to nearly $3.1 billion for 2014-22. Including deals with ESPN and satellite broadcaster DirecTV, the NFL will collect about $6 billion a year in total TV revenue beginning in 2014, a figure that will likely increase the following year after the DirecTV deal expires. NBC is a unit of
Comcast
Corp.'s
majority-owned NBC Universal, while Fox is a unit of
News Corp.
,
which also owns The Wall Street Journal. CBS is a unit of CBS Corp., and ESPN is a unit of
Walt Disney
Co.

The NFL reached a $27.9 billion deal with Fox, CBS and NBC for the rights to broadcast games from 2014 to 2022, Matthew Futterman reports on Markets Hub. Photo: REUTERS.

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For many of the networks, the NFL is a break-even investment at best—but one they feel they have to make. NFL rights will account for roughly a quarter of the total programming spending by the four networks, including ESPN, by 2015, up from just over 20% in 2008, according to projections from SNL Kagan.

While TV advertising has generally grown slowly in recent years, advertising on NFL games has soared. Ad rates for NFL games rose 27% to $347,800 for a 30-second spot last season, compared with the 2007 season, according to WPP's Kantar Media. The cost of a similar nonsports prime-time ad, by contrast, fell 14% last year from 2007. And the total amount advertisers spent on NFL advertising last season, about $3.3 billion, is up over 20% since the 2007-2008 football season, according to Kantar. Overall TV advertising on U.S. broadcast and cable networks grew just 3.5% between 2007 and 2010 to $44.3 billion.

Mark Lazarus,
the chairman of NBC Sports, says NFL football is simply too popular not to have. "We think it's one of, if not the, premier television property," he says. "It has value to us for reaching consumers, for diversifying our affiliates and giving our advertising sales team a mix."

So far this fall, NFL games have averaged 17.8 million viewers at any given minute, more than almost all regularly scheduled programs, according to Nielsen data. Importantly, many of those viewers are young men, who are hard for advertisers to reach through other programs. And the fact that most consumers watch NFL games live is important at a time when many viewers record shows and then skip the commercials when they watch them later.

The NFL "is almost a necessity for broadcast and cable networks in terms of maintaining the health of their business overall," says
Kris Magel,
director of national broadcast at Initiative, a media-buyingunit of Interpublic Group of Cos.

At the same time, though, at least in some cases the NFL is eating up advertising dollars that would have ended up elsewhere on television. "For us it comes out of other TV budgets," says
Steve Shannon,
vice president of marketing for Hyundai Motor America. "Big important media properties are more valuable than ever."

Still another reason for networks to pay up for the NFL: The popularity of NFL games gives them a big weapon in disputes over subscription fees with cable, satellite and telecommunications companies that sell TV service. Big broadcast networks like Fox and CBS have increasingly sought those fees to supplement ad revenue, and CBS, for instance, has said it expects to bring in more than $250 million a year in subscription fees by the end of 2012.

"The subscription component is really important going forward, because that's how they're going to get more money out of cable companies," says
Deana Myers,
a senior analyst at SNL Kagan.

But sports fees are helping to drive up cable rates, raising concerns among media executives that consumers will soon balk at the increasing cost of television.

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